By Lyle Solomon
According to a report from the National Financial Educators Council, some people may lose as much as people who said not being financially literate cost them more than $10,000.
What is financial literacy? It means learning how to spend, save and borrow, invest, pay off debts, and accumulate wealth to promote financial independence.
But is financial literacy so necessary that it should be taught in schools, and can’t just students learn about their finances independently?
Yes. Traditionally, lack of parental guidance and poor decision-making were blamed for backward financial literacy. But there are other factors at play as well.
Why is the idea that students can learn about their finances from home flawed?
Critics of school-based financial education have argued that teaching kids about money is the parents’ responsibility. This isn’t a recent criticism. However, there are some significant holes in the argument.
Although financial learning should start at home, for families that are “unbanked,” may be new to this country, or just not sure of their skills, schools play a critical role.
Financial literacy is low among U.S. adults, including minority households. On average, African American adults correctly answered 38% of the P-Fin Index questions. Only 28% answered over one-half of index questions correctly, with 5% answering over 75% correctly.
How can we expect adults struggling financially to make their kids financially literate? Additionally, some kids don’t have parents or guardians to guide them.
By including the subject of personal finance in their classroom, we can help close the financial inclusion gap by educating those students who need that guidance the most.
Now let’s focus on the benefits of financial literacy curriculum in schools.
Better Financial Decisions
According to a study conducted by the FINRA Foundation, students who understood financial matters were less prone to incurring late fees, making minimum payments on their credit cards, and resorting to payday loans.
Several states, including Georgia, Idaho, and Texas, have introduced mandates for financial literacy education, improving credit scores and decreasing delinquency rates.
Helps Student Understand Student Loan Debt
Upon graduating, most students typically require student loans to finance their college education. However, only a few truly comprehend the details of their loan agreements or the appropriate amount of debt.
Therefore, integrating financial literacy courses into the school curriculum will help them better understand how these loans function by showing them how to complete the Free Application for Federal Student Aid (FAFSA), maximize federal grants, and apply for scholarships.
The classes can also highlight the difference between federal and private loans and show why federal loans are generally the more favorable choice for most individuals.
Helps Save More Money
Most Americans would have difficulty coming up with even a few hundred dollars when faced with unexpected emergencies like losing their job.
That’s how tight the personal financing of the majority of Americans is.
Financial literacy classes can teach students the importance of saving, what to do with the amount saved, the power of compound interest, and why it’s beneficial to start investing at a young age.
Financial Literacy Improves Overall Life Situation
Financial stability goes far beyond just providing financial benefits. There’s also the aspect of better mental and physical health and overall life satisfaction.
Research suggests a link between financial instability and mental health conditions like anxiety and depression.
Understanding the importance of financial literacy is crucial, especially when it comes to planning for the future. It’s essential to explore what happens in situations of “no will” to fully comprehend the significance of estate planning.
Hence, by possessing financial literacy, individuals can effectively navigate life’s various challenges, resulting in improved physical health, mental well-being, and stronger relationships.
Financial Literacy Can Help Individuals Reach Their Goals
By learning more about how to budget, save, consolidate multiple debts, and invest, individuals can craft comprehensive financial plans that establish realistic expectations, foster accountability, and pave the way for attaining seemingly insurmountable aspirations.
Even if one’s dream remains out of reach, it is always possible to devise a strategic roadmap to enhance the likelihood of transforming it into a reality.
The Bottom Line
Financial literacy education in schools is crucial for equipping students with the necessary knowledge and skills to navigate their financial futures.
While parental guidance is traditionally responsible for teaching about money matters, that’s not the way we can rely on anymore. Not all families can fulfill this role effectively.
So, by integrating financial literacy into the curriculum, schools bridge this gap and provide vital guidance.
Investing in the financial literacy of our youth is the best thing we can do to help them reach their full financial potential. By ensuring students receive comprehensive financial education, we can pave the way for a brighter future.
Lyle Solomon has extensive legal experience, in-depth knowledge, and experience in consumer finance and writing. He has been a member of the California State Bar since 2003. He graduated from the University of the Pacific’s McGeorge School of Law in Sacramento, California, in 1998 and currently works for the Oak View Law Group in California as a principal attorney.
